Net Interest Margin Outlook
Q: Where do you foresee the net interest margin settling over time?
A: Management expects the net interest margin to compress slightly in the first half of the year due to headwinds like a $3 billion notional of received fixed swaps becoming effective. They anticipate exiting the year with a net interest margin around 3.6%, as deposit costs decline and loan and security repricing add 200–250 basis points towards the back end of the year. Controlling deposit costs is key to achieving this outlook.

Deposit Betas and Pricing Strategy
Q: How will deposit betas change as rates decline?
A: Management anticipates a deposit beta of 35% on the way down, with nearly 60% of interest-bearing deposits indexed to the Fed funds rate. As rates decrease, costs for these deposits should automatically reduce. They are confident in managing deposit costs without significant competition pressure, leveraging their strong core deposit base and lack of wholesale borrowings.

Credit Quality and Non-Performing Loans
Q: What drove the increase in non-performing assets this quarter?
A: The increase resulted from expected migration of loans to nonperforming status, particularly in senior housing, transportation and warehousing, office, and consumer discretionary manufacturing sectors. Management views this as a return to traditional nonperforming levels of 80–110 basis points and has provided for potential losses accordingly.

Fee Income Outlook
Q: What is the outlook for fee income growth?
A: Management expects fee income to rebound, especially in capital markets and mortgage servicing rights. They foresee growth in M&A activities later in the year, plan to acquire more mortgage servicing rights when economically favorable, and anticipate continued growth in treasury management and wealth management revenues.

Capital Management and CET1 Target
Q: How are you thinking about uses of capital and CET1 targets?
A: The bank aims to maintain a 10% CET1 ratio, using capital to support loan growth, pay dividends at 35–45% of earnings, and invest in growth opportunities like mortgage servicing rights. Share repurchases are a tool to manage capital levels, but the pace depends on earnings and strategic investments.

Loan Growth Outlook
Q: How do you expect loan demand to trend this year?
A: Loan growth is expected to be muted in 2024, with modest growth anticipated in the second half as economic activity improves. Growth is expected in core middle market banking, small business banking, and consumer areas like mortgage and EnerBank.

Operating Leverage Outlook
Q: When do you expect to achieve positive operating leverage?
A: Positive operating leverage is anticipated in 2025, with improvements beginning in the latter half of 2024 as net interest income and margins stabilize and grow. The high margins in early 2023 present tough comparisons for 2024, making positive leverage challenging this year.

Regulatory Changes Impact
Q: What is the potential impact of regulatory changes on interchange and overdraft fees?
A: Proposed debit interchange fee adjustments could reduce net income by approximately $45 million starting mid-year. Overdraft fee regulations remain uncertain, and it's premature to estimate their impact.

Technology Investments and Expenses
Q: How are technology projects affecting expenses?
A: Technology investments, including the [R2] transformation project, continue as planned, with spending at 9–11% of revenue. These projects are on schedule and budget, with no delays. Overall expenses are expected to remain flat after adjusting for prior operational losses.

Exposure to Senior Housing
Q: What is your exposure to senior housing, and what's the outlook?
A: The bank has approximately $118 million in nonperforming loans in the senior housing sector, with reserves of about 3.7% against these credits. Improvements are seen as occupancy rates increase over time.

Competition from Private Credit Markets
Q: How are you impacted by competition from private credit markets?
A: The bank does not see significant competition from private credit in its core middle market customer base and has modest exposure to private equity. They have not lost notable customers to private credit lenders.

Fraud and Operational Losses
Q: Are you confident that elevated check fraud is under control?
A: Implemented countermeasures have been effective, and management expects operating losses to normalize to $20–25 million per quarter. Associated expenses are included in projections for 2024. Ongoing vigilance is emphasized to stay ahead of potential fraud.